The Thrill of Boredom

Tomorrow morning your New York editor will hop a plane to Colorado, where he hopes to continue perfecting his aptitude for doing nothing…or at least for doing as little as possible. He would like to do SOMETHING while he is away, but he has come to understand how counterproductive that can be.

The vacationer who does too much, risks exhausting the very mind and body he should be rejuvenating. Likewise, the investor who does too much, risks exhausting a portfolio’s potential to deliver capital gains.

"Do nothing!" the world’s finest investors advise.

Folks like Warren Buffett, Ralph Wanger and Marty Whitman all hail from the minimalist school of investing. That is, they all practice a financial version of the Hippocratic Oath: "First, do no harm."[Editor’s note: Contrary to the popular misconception, the Hippocratic Oath does not actually contain this phrase. Nevertheless, "do no harm" is clearly the sentiment that the oath conveys.] It is perhaps no accident, therefore, that all three of these gentlemen have quintupled their investors’ money over the last 12 years, handily outdistancing the S&P 500 in the process.

Warren Buffett is, of course, the founder and chairman of Berkshire Hathaway (NYSE: BRK/A), the world’s most successful holding company. Thanks to Berkshire’s many successes, Buffett has become the world’s second richest human. Ralph Wanger has never made the Forbes list of richest individuals, but his investment skills have brought infinite riches to the owners of his Columbia Acorn Fund (ACRNX), a mutual fund dedicated to small- and mid-cap value stocks. Marty Whitman also runs a value-focused mutual fund. His Third Avenue Value Fund (TAVFX) pursues a classic Graham and Dodd strategy: Buying well-financed companies at a substantial discount to their intrinsic value.

Buffett unabashedly credits his infrequent investment activity for much of his success. In Berkshire Hathaway’s 1990 annual report Buffett wrote, "Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings."

Wanger advocates a similar approach, as he explained recently when chatting face-to-face with our own Chris Mayer. "Most investors over-trade," he says. Instead of trading, they should be buying "boring stocks" that nobody wants, then hanging onto them for the long-term. "Give your stocks time to work," Wanger advises.

Whitman, no surprise, pursues a similar strategy…if we may call it that.

"You make more money sitting on your ass," Marty Whitman indelicately explained to Jim Grant recently. "We’re buy-and-hold. I’ve been in this business over 50 years. I have had a lot of experience holding stocks for three years; doubled, and I sold them to somebody else for whom it tripled in the next six months."

Therefore, Whitman has become slower to pull the "sell" lever than he used to be. He will readily sell a "grossly overvalued" security, he says, but steadfastly refuses to eject a "modestly overpriced" one. Whitman’s unique style of "ass-sitting" seems to be working. Over the last 15 years, his Third Avenue Value Fund has produced double the return of the S&P 500 – a nifty 16% annualized.

So what’s this indolent investor sitting on currently? Japan’s Toyota Industries represents 6.4% of his fund. His other top-10 holdings include a bevy of real estate securities like St. Joe Co. (NYSE: JOE), Tejon Ranch (NYSE: TRC), Brascan Corp. (NYSE: BN) and Hutchison Whampoa (HK: 13). Whitman admits that these securities are not as cheap as they were three years ago. But he’s content, nevertheless, to continue sitting on them…just like he always does.

The collective message from Messieurs Buffett, Wanger and Whitman is very clear; whoever hopes to become a truly successful investor must learn to do nothing.

Over the next two weeks, therefore, your editor will endeavor to perfect the art of selective indolence. He will do something, to be sure, just not very much of it. He will resist the urge to do too much, no matter how interesting the possible diversions may be…and Colorado does not lack for interesting diversions.

My oldest son, Noah, who arrived in Colorado ahead of the rest of the family, provides the following advance-recon from a Wal-Mart store near Denver: "Dad, you can’t believe this place! I’ve been in lots of Wal-Mart stores, but I’ve never seen one like this…They’ve got peaches and shotguns in the same store! It’s crazy! One moment Grandpa and I were buying sweet corn, the next moment we were walking to the other side of the store to buy shotgun shells. The place has everything!"

Given the array of possibilities, therefore, your editor might eat a peach on his vacation, or fire a shotgun, or fire a shotgun at a peach…But apart from that, nothing much.

And the Markets…

Thursday

Wednesday

This week

Year-to-Date

DOW

10,686

10,594

45

-0.9%

S&P

1,238

1,229

4

2.1%

NASDAQ

2,175

2,158

-10

0.0%

10-year Treasury

4.32%

4.40%

0.04

0.11

30-year Treasury

4.52%

4.58%

0.04

-0.31

Russell 2000

666

660

-13

2.3%

Gold

$445.78

$437.60

$16.28

1.9%

Silver

$7.17

$7.09

-$0.06

5.2%

CRB

322.59

319.94

10.59

13.6%

WTI NYMEX CRUDE

$65.80

$64.90

$5.23

51.4%

Yen (YEN/USD)

JPY 109.68

JPY 110.72

2.76

-6.9%

Dollar (USD/EUR)

$1.2470

$1.2371

-343

8.0%

Dollar (USD/GBP)

$1.8119

$1.7935

-543

5.5%

The Daily Reckoning

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Better to get out of the market a month too early than a minute too late…

About Eric Fry:

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant’s Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant’s International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling.

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron’s, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.